ERP vs Accounting Software: What’s the Difference?
As organisations scale up and expand their teams, accounting for more people and more revenue can become quite complex—even daunting. While technological change offers innovative software solutions to help with meticulous financial recording and reporting, a rising number of organisations are seeking support for accounting from enterprise resource planning (ERP) systems.
ERP solutions have become popular not just for financial management, but for their wider management applications across a business—from supply chains to human resources (HR).
But how should an organisation choose between ERP and accounting software? Here we shed some light on the topic to help you make the right decision for your business.
What is accounting software?
As its name suggests, accounting software supports a company in managing its finances. These systems store static financial data and information to enable accounting teams’ bookkeeping through specific functions or ‘modules’, such as:
- General ledger: collecting and reconciling transaction data in real-time
- Accounts payable: logging the organisation’s short-term debts, e.g. to vendors, creditors and suppliers
- Accounts receivable: logging the short-term debts owed to an organisation, e.g. its customers or clients
- Fixed assets: tracking the purchase, depreciation, and sale or disposal of assets, e.g. business equipment, property, company cars, etc.
- Inventory management: monitoring stock levels, inventory values, and product orders
- Financial statements: profits and losses, cash flow statements, income statements, balance sheets, etc.
- Points of sale: accounting software can integrate all sales transaction data into one place to help reduce errors
- Chart of accounts: listing all accounts used by a business, identifying and tracking income, expenses, assets, and equity
What is ERP software?
ERP systems use digital tools and analytics to gather data from various business departments, and integrate this interdepartmental data as one unified database. Managers and senior leaders can derive powerful insights into operations from this data to identify where business processes have room for improvement.
Despite the name, it is not simply for enterprises. ERP software can successfully streamline and enhance operations for small and medium-sized businesses too, enabling greater efficiency and potentially higher revenues.
ERP functions for accounting
The benefits of ERP accounting tools lie firstly in data integration: by transferring information automatically, these systems remove the need for manual data entry and streamline this aspect of the accounting process.
Finance
The ERP finance module performs the functions of accounting software, supporting the general ledger and accounts payable/receivables. But ERPs also give accountancy teams the tools for financial planning, profit tracking, tax management, and are able to connect with a company’s existing bank accounts.
Real-time analysis
One of the greatest advantages ERP has for bookkeepers (and others) is its ability to gather real-time data and use it to review a business’s financial data at any given moment, including:
- Forecasts, budgets, projects
- Flow of costs
- Costs broken down by time, unit, quantity, size, etc.
- Historical cost-variance analysis
These enhanced insights allow accounting teams to create better financial forecasts for more accurate profit predictions and financial planning.
Analytics
The ERP analytics module draws insights from the finance modules through general ledger to assess profitability and enhance cash flow and data collections. It can also enable finance teams to track accounts payable with greater accuracy and help prioritise payment deadlines. Analytics tools also help pinpoint opportunities for cost savings and can enhance expense monitoring through automating data entry.
It’s also worth noting the financial advantages ERPs offer through other modules. For instance, cost-variance analysis for project managers, supply chain management for operations and logistics teams, and more.
The difference between ERP and accounting software
ERP and accounting solutions can both serve the same purpose, but are different in scope. Organisations do not need an ERP to get the benefits of accounting systems, but they will find ERP accounting software included within ERP packages.
Since ERPs can integrate data from various departments under specific modules, e.g. accounting, HR, manufacturing, marketing, sales, and supply chain, they have a wider application and can deliver broader financial value to a company.
Here’s a summary of the main differences:
- Scope and integration: While accounting software covers financial management tasks, ERP supports operations across an organisation, e.g. manufacturing, procurement, sales, and marketing. This means ERPs have stronger and wider-reaching capabilities for financial management and operations.
- Scalability: Accounting systems are good for small companies to consolidate their data, but for businesses that are growing up ERPs offer added functionality and scalability through cloud technology
- Customisation: Accounting software systems are known for their flexibility, enabling organisations to adapt the solutions for industry-specific needs. However, ERPs have a high level of customisation due to the fact that they can integrate the different functions, e.g. operations, finance, sales into a unified and coordinated system with broader adaptability
- Implementation and cost: Accounting software does not require as much upfront investment compared to ERP, and can be implemented more rapidly. This comes at the expense of the cross-functional and longer-term uses of an ERP
ERPs and cloud computing accounting software
Since cloud computing enables even greater data accessibility, analysis and scalability, cloud ERP software is being increasingly developed and adopted. Cloud ERPs are hosted by the third-party provider and feature similar, or enhanced, functions as on-premises systems but do not involve upfront licensing fees, making them a desirable option for many organisations.
For finance teams, cloud ERPs deliver cash flow and profitability data in real-time, as they integrate with other operations for greater accuracy. This enables bookkeepers to focus their efforts on monitoring audits, cash runway, and wider financial performance.
Which solution should you choose?
The ultimate benefits of ERP systems is efficiency and decision-making. They enable businesses of all sizes to transform their processes through the smart management of data and improved cross-functionality across an organisation by breaking down silos between teams.
For small to medium-sized businesses (SMEs), the power of this systematic approach to data sharing is desirable, but it does come with an initial investment. Its potential becomes more valuable as a business grows, but in some cases it may be that accounting software modules will be sufficient in the short-term.
You should choose an ERP if you:
- Are seeing an uptick in sales and growth in sales and customer numbers putting a strain on processes and resources
- Have many different unconnected systems
- Do not have a single source of truth for company data
- Spend too much time on manual data entry, admin, and management
- Experience errors that interrupt accounting workflow
- Are unable to turnaround performance reporting efficiently
- Have problems with data compliance
- Frequently need to copy in data for analysis and reporting
Xpedition’s expertise customising the ERP accounting package
We’ve implemented finance and accounting solutions across a broad range of industries and business types. Our Microsoft-certified consultants’ deep experience with Business Central means they can swiftly familiarise themselves with your organisation and leverage their expertise to help you map out a successful transformation of your accounting processes.
The bespoke additions we’ve installed for finance teams across numerous sectors include:
- Spend Management: Providing additional procurement functions for Business Central users such as enhancing purchase processing through budget control, faster PO release to suppliers, and creating a more transparent user experience
- Credit Control: Boosting Business Central’s credit control capability by giving users greater oversight over outstanding invoices, the ability to set up definable comments and record vital deadlines
- Finance Enhancements: Simplifying everyday use of Business Central with added capabilities, such as: General Ledger reporting groups, master data synchronisation, and the ability to import Journal CSV, XML or JSON
Transform your organisation’s accounting processes
For a cost-efficient, flexible solution that can easily integrate with other critical business systems, Xpedition recommends Microsoft Dynamics 365 Business Central. Our team can support organisations to implement the software and configure it for each department and elevate operations across a business.
Learn more about Microsoft Dynamics 365 Business Central or contact one of our team today to find out if it’s time for your business to take its accounting process to the next level.
